A Peterson Foundation billboard displaying the national debt and each American's share is pictured in Las Vegas, Nev., on Feb. 8, 2022. (Bryan Steffy/Getty Images for Peter G. Peterson Foundation)
America’s public debt is now over $31.3 trillion! Watch the U.S. debt clock increase in real-time (here) and be shocked and amazed at how fast the debt is increasing.
As the U.S. Treasury Department reported, “the national debt ($31.35 T) is the total amount of outstanding borrowing by the U.S. Federal Government accumulated over the nation’s history.”
Can that debt ever be repaid?
Perhaps more importantly, is there any way to stop the continued borrowing that is mortgaging the future of the country?
Let us explore the topic.
Background
Article I, Section 8 of the U.S. Constitution gives Congress the power “To borrow Money on the credit of the United States.” This is how U.S. debt is financed. U.S. Treasury securities are sold to investors and may be purchased directly from the Treasury or on the secondary market by individual private investors, the U.S. Federal Reserve, financial institutions in the United States or overseas, and foreign/state/local governments.
All creditors who finance U.S. debt expect repayment, with interest. The main creditors underwriting U.S. public debt include insurance companies, U.S. savings bondholders, private pension funds, government-sponsored enterprises, banks, etc. Increasingly, foreign governments are creditors to the tune of about $7.3 trillion, including Japan ($1.12 trillion), communist China ($933 billion), the UK ($663 billion), and others. Foreign governments utilize U.S. securities as “safe havens” and to prop up the U.S. dollar, which makes their own exports to the United States less expensive (and thus more competitive).
While the spike in U.S. debt since the 1970s is troubling, what is particularly disconcerting is the debt to gross domestic product ratio, which has shot almost straight up, especially after the 2008 recession and during the pandemic, to an unprecedented 125 percent this year. The debt-to-GDP ratio indicates a country’s ability to pay future debts, with anything over 100 percent considered to be very troubling in terms of being able to service existing and future debt. A World Bank study found that economies slow down significantly in countries where a debt-to-GDP ratio over 77 percent continues for extended periods, complicating a country’s ability to finance its public debt. The U.S. ratio has exceeded 77 percent since 2008.
The U.S. Treasury Department building in Washington on Oct. 18, 2018. (Mandel Ngan/AFP via Getty Images)
Stopping Deficit Spending
One very important control mechanism that can be used to stop—or at least reduce—deficit spending is the requirement that Congress approve any increases in the “debt ceiling,” which enables new deficit spending by the federal government.
The debt ceiling is the amount of money the U.S. Treasury can legally borrow to pay past debts (interest) and pay for new spending passed by Congress. Congress has been periodically passing debt ceiling increases to fund continued deficit spending. As reported by Senate Republican Policy Committee, the debt limit has been raised or suspended 56 times since 1978. A suspension is a sleight-of-hand maneuver to facilitate short-term spending that suspends the previously approved limit for a set period, after which that limit continues in force.
The year 1978 is important, for that year marked the beginning of the profligacy of Congress. From 1950 through the mid-1970s, U.S. debt was constant at about $3 trillion due to the constraints on congressional spending that were in place due to the budgeting process that had been implemented since the country was founded. Until 1974, spending was controlled by congressional votes on separate bills that concerned specific appropriations, revenues, and authorizations–generally by cabinet departments (for example, Defense, Health and Human Services, Labor, etc.). The process facilitated public scrutiny of specific spending bills and public pressure on committee chairmen to control spending.
However, the Democrat-controlled Congress in 1974 passed the Congressional Budget and Impoundment Control Act (1974). Like many congressional bills over the years (the ridiculous “Inflation Reduction Act” passed this year is a case in point), its ostensible purpose was exactly the opposite of how it was sold. The bill was intended to “correct problems such as late appropriations, dependence on continuing resolutions (short-term spending measures), budget deficits, and inadequate control over entitlement programs,” according to Encyclopedia.com.
In practice, the 1974 act made it much easier for Congress to spend money through deficit spending, as well as through the curtailment of the presidential power of impoundment (the ability of the executive branch to decline to spend all congressionally appropriated funds). Budgets subsequently were treated in the whole, and eventually, gargantuan continuing resolutions that funded the entirety of government became the order of the day in Congress.
Thus, in 1978 began the series of 56 increases in the debt limit noted above, and here we are today with over 10 times the debt that existed for most of the country’s existence prior to 1974. This is proof of the pudding that the 1974 act actually exacerbated the problems it was supposed to fix.
Senate Minority Leader Mitch McConnell (R-Ky.) (center) speaks to reporters as other senators stand by, in Washington, on Sept. 22, 2021. (Anna Moneymaker/Getty Images)
But deficit spending by Congress cannot happen without an increase in the debt limit. This is the hammer that Republicans have wasted twice during the Biden administration, which has made the $5 trillion in Biden-Democrat deficit spending possible (as well as the subsequent 8 percent inflation!). Last year Senate Minority Leader Mitch McConnell (R-Ky.) and other Senate Republicans caved to the Democrats in October 2021 and again in December 2021 by giving them two debt limit extensions, which opened the floodgates for the Democrats’ spending bills this year.
Concluding Thoughts
Will Republicans give away the store again to the Democrats by increasing the debt limit without spending concessions and a change in spending priorities? There is talk of Congress passing a gargantuan omnibus spending bill in the lame-duck session between now and January. Outgoing congressmen in the House would like one more spending gift for their donors and constituents.
White House officials clearly want to increase the debt limit and use the budget reconciliation process to fund as many Democrat spending priorities as possible before the Republicans take over the House in January, as noted by Politico. Budget reconciliation is another sleight-of-hand maneuver to avoid the Senate filibuster and get more spending passed by a simple majority vote.
However, resistance to that gambit is materializing in several forms: Sen. Joe Manchin (D-W.Va.) is likely opposed to extending the debt limit without Republican votes, and McConnell had publicly stated that the debt limit extension isn’t up until “sometime next year” (which is, after all, the deal he made with the Democrats when he agreed to the debt ceiling increase last December). Furthermore, House Republicans are debating who the next Speaker will be, with moderate Kevin McCarthy (R-Calif.) coming under increasing pressure from fiscally conservative members of the Republican caucus to actually defund past Democrat appropriations bills (and get spending under control).
The possibility is still very real that Republicans will roll over, extend the debt limit, and acquiesce to Democrat efforts to use reconciliation to fund their priorities over the next two years before the Republicans take control of the House in 2023. After all, the Republicans have caved many times before on extending the debt limit. Public pressure will be key to preventing that from happening this time around.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Stu Cvrk retired as a captain after serving 30 years in the U.S. Navy in a variety of active and reserve capacities, with considerable operational experience in the Middle East and the Western Pacific. Through education and experience as an oceanographer and systems analyst, Cvrk is a graduate of the U.S. Naval Academy, where he received a classical liberal education that serves as the key foundation for his political commentary.
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